BUSINESS, CORRUPTION AND CRIME IN THE WESTERN BALKANS: BUSINESS, CORRUPTION AND CRIME The impact of bribery and other crime on private enterprise IN THE WESTERN BALKANS: The impact of bribery and 2013 other crime on private enterprise 2013 With funding from the European Union UNITED NATIONS OFFICE ON DRUGS AND CRIME Vienna BUSINESS, CORRUPTION AND CRIME IN THE WESTERN BALKANS: The impact of bribery and other crime on private enterprise 2013 Copyright 2013 © United Nations Office on Drugs and Crime (UNODC) Acknowledgements This report was prepared by UNODC Statistics and Surveys Section (SASS). Research coordination and report preparation: Enrico Bisogno (SASS) Michael Jandl (SASS) Felix Reiterer (SASS) Field research: Albania: Olsida Capo, Elsa Dhuli, Ines Nurja (Institute of Statistics of Albania) Bosnia and Herzegovina: Dino Djipa, Salminka Fazlic (Prism Research) Croatia: Jelena Budak, Edo Rajh (Institute of Economics, Zagreb) Kosovo: Muhamet Kastrati, Bashkim Bellaqa, Isa Krasniqi, Ibrahim Rrustemi, Sanije Ismajli (Kosovo Agency of Statistics) Montenegro: Gordana Radojević, Snezana Remikovic, Biljana Sekulovic (Statistical Office of Montenegro) Serbia: Jelena Budimir, Tijana Comic (Statistical Office of the Republic of Serbia) The former Yugoslav Republic of Macedonia: Blagica Novkovska, Helena Papazoska (State Statistical Office) Project Associates: Regional Anti-Corruption Initiative for South Eastern Europe (RAI), Transcrime Design and layout: Suzanne Kunnen, Kristina Kuttnig (Research and Trend Analysis Branch, RAB) Editing: Jonathan Gibbons Supervision: Sandeep Chawla (Director, Division of Policy Analysis and Public Affairs) and Angela Me (Chief, RAB) Appreciation and gratitude go to the Bosnia and Herzegovina Agency for Statistics (BHAS) for the techni- cal support they provided in compiling the sampling frame for Bosnia and Herzegovina. The precious contribution of Giulia Mugellini for the development of survey methodology is gratefully acknowledged. All surveys were conducted and reports prepared with the financial support of the European Union and the Governments of Germany, Norway and Sweden. Sincere thanks are expressed to Roberta Cortese (Euro- pean Commission) for her continued support. Disclaimers This report has not been formally edited. The contents of this publication do not necessarily reflect the views or policies of UNODC or contributory organizations and neither do they imply any endorsement. The designations employed and the presentation of material in this publication do not imply the expression of any opinion on the part of UNODC concerning the legal status of any country, territory or city or its authorities, or concerning the delimitation of its frontiers or boundaries. All references to Kosovo in the present publication should be understood to be in the context of Security Council resolution 1244 (1999). Photos: The pictures are used for illustration only and were not taken in the context of corruption © shutterstock CONTENT Preface 5 Executive summary 7 Introduction 11 1. Prevalence of bribery 15 2. Nature of bribes 21 3. Public offi cials and bribery 29 4. Reporting of bribery 35 5. Business-to-business bribery 39 6. Perceptions and opinions about corruption 45 7. Prevalence and patterns of other forms of crime 51 9. Concluding remarks 63 Annex I 67 Annex II 71 Annex III 73 3 PREFACE This study offers a comprehensive assessment vulnerabilities but also the successes achieved of corruption as experienced by businesses in in fighting corruption – needs to be carried the western Balkans, based on interviews with out regularly and consistently so that policy more than 12,700 companies. If not coun- makers have the necessary information to tered by strong preventive and law enforce- implement and evaluate anti-corruption ment action, corruption and crime can act as measures. a barrier to private and foreign investment as well as trade, and hinder economic develop- A broad range of stakeholders in the western ment. By identifying areas of vulnerability, the Balkans, ranging from anti-corruption agen- study aims to support governments in the cies, law enforcement and criminal justice region to implement the United Nations Con- institutions to business organizations and vention against Corruption and work effec- chambers of commerce, were consulted during tively with the private sector to develop and the preparatory phase of the survey. UNODC put into action anti-corruption strategies and partnered with National Statistical Offices measures. and other data producers, and involved national anti-corruption agencies, business In order to provide guidance for public inter- organizations and others in the design of the ventions and evidence-based policymaking survey as well as in the dissemination of the that support the rule of law and fair markets, results, thereby helping to strengthen national it is necessary to go beyond perception-based capacities to produce evidence-based assess- and general indicators of corruption and ments of corruption and crime. measure the actual experience of corruption and crime. This survey, which follows The study demonstrates that measuring cor- UNODC’s 2011 survey of bribery and other ruption affecting the business sector is both forms of corruption as experienced by private possible and useful. It is also an excellent households in the western Balkans, seeks to example of the work carried out by UNODC provide this tool. to support Member States in areas related to our mandate and expertise. UNODC’s Furthermore, building long-term capacity and Regional Programme for South Eastern promoting the sustainability of corruption Europe (2012-2015) was recently launched at monitoring instruments was an explicit goal the request of, and in close partnership with, of this undertaking. Quantitative monitoring the countries of the region, to provide con- of corruption and integrity – of the related crete assistance in addressing the challenges 5 BUSINESS, CORRUPTION AND CRIME IN THE WESTERN BALKANS identified and analysed through studies like patterns and mechanisms of corruption is a this one. crucial step in countering this phenomenon, in line with the provisions of the United I am confident that the findings will be of use Nations Convention against Corruption, and to governments in the region, both to support our cooperation provides an excellent model their efforts to put in place effective preventive for the future. measures against corruption, and to facilitate preparations for their participation in the second review cycle of the Mechanism for the Review of Implementation of the Conven- Yury Fedotov tion, which starts in 2015 and also focuses on preventing corruption. I would like to commend all the participating countries for their active role in supporting Executive Director the conduct of this study. Understanding the United Nations Office on Drugs and Crime 6 EXECUTIVE SUMMARY This survey of private businesses in the west- it focuses on the extent and pattern of bribery ern Balkans reveals that corruption and other by businesses from five different sectors forms of crime are a great hindrance to private (accounting for some three quarters of all enterprise and have a negative effect on pri- businesses in the region) in their frequent vate investment in the region. A significant interactions with the public administration. It percentage of businesses pay bribes to public also examines business-to-business bribery officials repeatedly over the course of the year. within the private sector and looks at the Businesses in the Building and Construction impact of other crimes, some of which include sector are those most affected by bribery, fol- the use of violence, on the business sector. lowed by businesses in the Wholesale trade and Retail trade sector. Meanwhile, the largest Roughly one in ten businesses (10.2 per cent) shares of bribes are paid to public officials at that had contact with a public official in the 12 months prior to the survey paid a bribe to the local level (municipal or provincial offi- a public official. This means that, although cers) and to officials in the tax and customs significant variations exist between countries administration, which indicates that bribery across the region, the average prevalence of may be an important factor in tax evasion and business bribery in the western Balkans is very thus exerts a negative impact on public close to the share of ordinary western Balkan finances. citizens (12.5 per cent) who experienced the Such experiences of bribery are reflected in the same in UNODC’s 2011 general population perception of corruption by the region’s entre- survey.1 preneurs and business representatives, who The examination of the experience of busi- consider it the third biggest obstacle to doing nesses that pay bribes to public officials under- business, after high taxes and complex tax lines the fact that corruption plays a role in the laws. Yet while perceptions are undoubtedly daily business of many companies. Bribe-pay- useful for raising awareness about corruption, ing businesses pay an average of 7.1 bribes per this survey measures the actual experience of year, or about one bribe every seven weeks. corruption and crime through representative Both the prevalence and the frequency of brib- sample surveys of businesses in the western Balkans in order to provide a more realistic, 1 Data referring to bribery by individuals and households are evidence-based assessment of corruption and taken from the recent UNODC study, Corruption in the west- crime affecting the business sector. In so doing ern Balkans: bribery as experienced by the population (2011). 7 BUSINESS, CORRUPTION AND CRIME IN THE WESTERN BALKANS ery are substantially higher among small (10 portion of these bribes result in the evasion of to 49 employees) businesses than among busi- taxes or customs fees, subsequent losses in nesses of other sizes, while companies with public revenues caused by bribery will be sub- foreign capital participation have a signifi- stantial. cantly higher bribery prevalence rate (16.6 per cent), as well as a higher frequency of bribery As little as 1.8 per cent of bribes paid by busi- (8.1), than those with no foreign capital.